Costs subdue B+LNZ’s latest sheep and beef outlook

Confidence within the sheep and beef industry is subdued, despite strong farm-gate price expectations. Photo / Stephen Jaquiery

The outlook for global sheepmeat and beef demand is positive for the 2022-23 season, although an increase in farm expenditure and inflation could significantly reduce farmers’ margins, Beef + Lamb New Zealand’s new season outlook report says.

In Otago-Southland, gross farm revenue was forecast to drop 4.5 per cent to an average of $654,900 per farm, driven by lower sheep revenue, which was forecast to decline 7.7 per cent.

That decline was driven by lower sheep prices, fewer store lambs sold and reduced lambing percentages because of drought conditions in autumn.

Snow storms in early October were also likely to impact lambing results for many, especially high and hill country farms.

Wool revenue was predicted to drop 0.8 per cent to an average of $47,300 per farm with slightly fewer sheep to shear. Cattle revenue was expected to drop only marginally.

Nationally, farm expenditure was estimated to increase by 3.4 per cent to an average of $535,000 per farm for 2022-23. Major areas of costs, such as fertiliser, lime and seeds, interest payments, repairs, maintenance, vehicles and fuel were forecast to increase, even as farmers worked to reduce spending, the report said.

A large decrease in farm profit before tax nationally was forecast, down 9.7 per cent to an average of $181,100 per farm as margins were squeezed by ever-increasing costs, the report said.

Confidence within the industry was subdued, despite the lamb and beef farm-gate price expectations. That rising farm expenditure and increasing environmental regulation, including proposed GHG levies, intensive winter grazing requirements and biodiversity legislation, had dampened spirits and reduced confidence.

Land-use change from sheep and beef farms into forestry, fuelled by policy incentives, continued “unabated” and was viewed negatively by farmers and rural communities. Those factors would influence future changes to the breeding ewe flock, the report said.

B+LNZ chief economist Andrew Burtt said farmers were facing increasing inflationary pressure on-farm and, despite efforts to curb spending, it was a fight to keep costs down.

Total lamb export receipts were forecast at $3.66 billion FOB, down 5.7 per cent on a strong 2021-22. Lamb exports were forecast to be flat on 2021-22 at 280,000 tonnes shipped.

At an exchange rate of $US0.64, the average lamb price was forecast at $8.15kg for 2022-23, down 3.9 per cent on the previous season and 9 per cent up on the five-year average.

The outlook for mutton was moderately strong, driven by demand from China. The average export value was expected to decline 3.1 per cent, although the price remained very high at second place on the record 2021-22 season - 8 per cent higher than the five-year average.

The outlook for the global beef market was buoyant, fuelled by strong demand and relative tightening of global beef supplies. The imbalance of supply and demand had the potential to offset economic stress and inflationary disruption. Export revenue from beef and veal was forecast to be $4.7 billion FOB, little changed on 2021-22.